To maximize profitability, it is imperative that metals companies such as producers, refiners, and smelters maintain an accurate and timely metal balance across the enterprise to ensure that any metal losses are minimized and that exposures to market prices are adequately contained. To maintain an accurate metal balance calculation, metals companies need to know the metal content across the entire value chain which includes:
Put like this it seems simple, but the practical calculation of a metal balance can be quite complex without metal balance software and it is easy for errors to creep in and decisions to be made based on old data, leading to financial losses for metals companies.
So, what are the main challenges in metal balance calculations, and how can metals companies maintain a real-time, accurate metal balance?
Not all metal within the value chain will necessarily belong to the producer and some may need to be returned to a counterparty. If the metal is pledged, the party to which it needs to be returned may be different to the counterparty. Some products may not be physically available at the processing location, but rather reside with a third party. All of these issues need to be taken into account to determine an accurate metal balance.
Metals companies need a robust system in place to maintain an accurate metal balance. The system should maintain a separate metal account for every counterparty, and debit and credit the account on each and every appropriate transaction to manage metal ownership. This type of system keeps track of metal ownership and also continually updates the real-time metal position.
It is not sufficient to implement such a system via manual workarounds or spreadsheets – metal ownership must be tightly integrated with the overarching system used by a business' commercial or operations department.
Another major challenge is the timing of assay finalizations. Weight and assay finalization for raw materials may not happen simultaneously, and one can often take place weeks after the other in the real world. In the meantime, raw material may be consumed. Often, the metal produced gets sold even months before the assay gets finalized. Needless to say, this presents a problem for generating an accurate metal balance unless processes are in place to account for this.
This involves implementing a system whereby the final assay automatically triggers corresponding entries of metal gains or deductions across the wider system. This avoids the necessity of manual entries in multiple systems which introduces the possibility of error, delay, and uncertainty over a company’s metal position. Provisional or advised assay calculations may be used until the final assay result is known.
The third major challenge relates to calculating consumed concentrate. Concentrate is typically stockpiled in numerous bins at the mine and smelter locations where it is stored for the production of metal. The tricky aspect is that concentrate is consumed from these bins on an almost continuous basis, making it complicated to determine the remaining quantity and quality of concentrate left in any one bin at any given time.
There are numerous methodologies to determine the available quality of the pile, such as FIFO, LIFO, or running average. This information is then used to update the content of metal in the stockpile, which can be reconciled with the actual value. However, without automation in the form of specialized software, achieving this is error prone and delayed, leading to incorrect assessments of metal content, thereby impacting hedging and commercial decisions.
Many of the challenges discussed above are only compounded when organizations store their data across a multitude of different systems. This makes it difficult to extract relevant and accurate information in a timely manner without the need for manual intervention. These multiple systems will typically not be built to ‘talk to each other’ or interact in any way: a major hurdle when it comes to the frequent calculation of an accurate metal balance. A comprehensive CTRM software solution for metals must be designed to support a dynamic business environment and be flexible enough to allow for growth as well as powerful enough to generate reports in real-time.
Eka's Insight CM platform is comprehensive metals trading, risk, and supply chain software for managing physical trading, smelting, position, P&L, derivatives, risk, logistics, finance, bulk stock management, task execution, and business intelligence across base metals, concentrates, ferro alloys, steel, and scrap. The next-generation CTRM software provides real-time data to help miners, refiners, smelters, traders, and fabricators make decisions regarding buying, selling, hedging, processing, and moving metals. Mining operations maximize throughput to gain a competitive advantage when using InSight CM and smelting operators can closely monitor contracts, charges, penalties, metal balances, hedges, and mark-to-market positions to keep the smelter running at optimum capacity and maintain production margin.